Workers’ Compensation Fundamentals and Cost Savers

1. Workers’ Compensation Fundamentals and Cost Savers Laura K. Collins, Esq. VEC Richmond Area Employer Conference September 10, 2013

2. What we will cover Fundamentals • The basics of workers’ compensation • Claim coverage and denial • Insurance policy fundamentals Cost Savers • Proactive • Claim cost savers • Insurance cost savers

3. It’s complicated • Workers’ compensation is complicated • Knowledge is the first step to understanding and controlling costs. • The law is complex • The Insurance line is complex • Many parties are involved • Employer is removed or uninvolved in much of it

4. Workers’ compensation overview • Created due to an increase in work injuries • Created as a compromise to alleviate uncertainty for both employers and workers • Created out of need • Industrial revolution • Increase in work injuries, lawsuits and uncertainty • Present in every state by 1948 • Still needed* • *Each day ,more than 12 workers die on the job – over 4,500 a year • Each year, more than 4.1 million workers suffer a serious job related injury or illness • OSHA Injury and Illness Prevention Programs White Paper Jan 2012

5. For Injured Workers • An injured worker may receive one or more benefits for a covered work injury or disease*: • Medical • Wage replacement • Permanent impairment • Death benefits *Entitlement depends upon the nature and severity of injury

6. For Employers • Employers enjoy advantages under the law • Enjoys limited liability; pays limited benefits • Exclusive remedy (cannot be sued for work injury) • Limited compensability • Limited benefits No compensation for non-economic damages such as pain, suffering or loss of consortium No compensation for punitive damages

7. Not all injuries that occur at work are covered Injury must arise out of and in the course of work Injured worker must demonstrate: An identifiable incident; That occurs at a reasonably definite time; An obvious sudden mechanical or structural bodily change; and A causal connection between the incident and the bodily change Compensability • Employer is not responsible for all injuries that occur at work

8. The law provides for denial of certain claims Burden of proof is on the party issuing a denial Examples: Willful misconduct Intentional self-injury Intentional injury to another Intoxication Use of a non-prescribed controlled substance Willful breach of employer’s reasonable rules or regulation Some Claims Can be Denied

9. How good are your work rules?

10. Example - Safety Rules Failure to follow an employer’s safety rule is a common reason for a claim denial Caveat, many denials do not hold up at hearing Employer and carrier’s burden to demonstrate: Rule was reasonable Rule was know to the employee Rule was for the employee’s benefit Employee intentionally engaged in a forbidden act

11. Coverage is required - for a business with more than two workers and if a business hires a subcontractor with employees to perform the same trade or profession, or fulfill a contract, then the business must count the subcontractor’s employees when counting employeesand determining coverage needs. Consider also If a business uses an “independent contractor” and has the power to control how the work is performed, the worker is more likely an employee Corporate officers are employees under the law Temporary and seasonal workers are considered workers Family members performing work are considered workers Minors, aliens and trainees are all considered workers Coverage requirements • A business that performs work by hiring subcontractors with their own coverage must also have its own workers’ compensation coverage

12. The Act does not define independent contractor Courts look to the nature of the work relationship and particularly employer control as follows: Selection and engagement of the employee Payment of wages Power of dismissal; and Power of control of the employee’s actions Not all factors must exist. Proper Classification of Workers *Factor #4 is given the greatest weight Payment on a 1099 or designating a worker “independent” does not alter “employment” facts

13. Employee Misclassification: when an employer improperly classifies a worker as an independent contractor Studies indicate 30% or more of employers misclassify Employers misclassify to save money – up to 40% Honest employers cannot compete US Labor Dept Wage and Hour Division mounted an enforcement initiative in the construction industry Use investigations, litigations and penalties to ensure compliance Recovered $1.6 million in back wages for 1,800 workers Exponentially costly – often many similarly situated workers Workers’ compensation repercussions Penalties for coverage avoidance $ Audit premium $$ Risk of civil suit $$$ Employee Misclassification in VA

14. Insurance Policy Fundamentals • Learn insurance requirements and policy basics to see where you can save • Understand premium calculations, three main factors: • Type of work - classification code • Payroll • Experience rating (loss/safety) • Insurance helpers: • Keep good business records • Locate a knowledgeable agent • Select a good carrier if possible • Avoid audit premium • Provide a Drug Free Workplace – 5% insurance credit

15. Know your class code(s), ensure they are correct One of the primary pricing components for a policy Class codes are established by NCCI Virginia has 640 classification codes Each code is assigned a rate based on industry hazard Rate listed is per $100 of payroll A clerical worker, code 8810, has a low assigned rate – 0.17/$100 of payroll A roofer, code 5551, is high hazard with a higher assigned rate – 25.97/$100 payroll Assigned rate is used in calculating premium Class code errors result in a significant premium overcharges Classification Code • Assigned Risk Rates Online: www.scc.virginia.gov/boi/co/pc/ar_wcomp.aspx

16. Employer has greatest control over experience Experience rating analyzes employer’s loss data over 3 years For renewal 1/12, the loss experience for policies 1/08–1/09, 1/09–1/10, and 1/10–1/1 is applied Claim frequency matters more than severity, losses capped Know and begin to control your Experience Mod Experience Mod of 1.00 is a “unity” mod, it is neutral Experience Mod of less than 1.00 is more desirable Experience Mod of greater than 1.00 is undesirable Note: some government and other contracts disallow subcontracting to those with experience mods over 1.00 Know your experience modification • Once you understand your e-mod you will want to lower it

18. Policy Details • factors employer cannot alter • One factor employer can alter • Experience rating is where greatest savings can be realized, or costs added

19. Avoid Audit Premium Audit is common with premium pricing Obtain proper coverage at outset and be prepared Audit premium can be costly and unexpected Can be more costly than original policy Keep good business records Properly classify employees Maintain records of all subcontractor’s coverage (POC) At audit time be helpful and prepared Noncompliance can result in additional fees; getting dropped Compare your class codes, e-mod and premium each year Bureau of Insurance in SCC regulates underwriting; audit disputes Contact the Bureau via email at: bureauofinsurance@scc.virginia.gov or by phone at (804) 371-9741

20. Cost Savers Proactive efforts Actions to prevent claims Actions before a claim occurs Claim related efforts Actions to reduce claim costs Other cost savers

21. Workplace Safety Accidents occur but mostarepreventable Make workplace safety an important issue A high hazard business should make safety a higher priority Workers’ compensation is not an H.R. only issue - it is a significant workplace safety issue Safety should be a top-down issue with everyone’s involvement Everyone should be involved in identifying workplace hazards • Make workplace safety a priority in your workplace

22. Workplace Training Invest in training, especially for new hires Studies show younger workers and new workers have more injuries so investing in training can reduce injuries Essentially important for more hazardous work Develop training manuals or materials for workers and supervisors to rely on Training is the first step to establishing a safety rule Offer defensive driving class for workers who drive on the job* • *NCCI study indicates motor vehicle incidents are increasing; • and expensive – make up 2% of claims but 5.6% of losses

23. Educate staff about workers compensation Staff must be instructed to report and treat promptly Provide staff workers’ compensation information Introduce it to new staff at staff orientation Advise prompt medical treatment Provide work injury reporting instructions Include in staff handbook Provide reporting protocol List whowhen, where & how to report Designate a person to receive reports Provide panel of physicians Worker Introduction

24. Carrier selection • Select a desirable insurance carrier • Some control costs better than others • In the event of a claim you must rely on your carrier for reporting, investigating, adjusting and settlement • Why is your carrier good? • Do they have online tools? • Case load of 125 or lower? • Do they settle claims? • Medical case management? • Prompt reporting & payment? • Ask their adjusting points.

25. Employer is required by law to keep a record of all work injuries and deaths and report promptly Late reporting increases claim costs Report promptly using carrier’s preferred method Delayed reporting can jeopardize claim investigation Wait 7-14 days to report – claim costs increase 18% Wait 15-28 days and claim costs jump 30% Late reporting raises the potential for litigation Late reporting is a violation of law with civil penalty Report Promptly • Prompt reporting can reduce costs in many ways

26. Communicate Communication is essential Communicate before, during and after an injury Ensure managers knows how to properly respond to an injury Communicate well during an injury to ensure swift and proper treatment for the worker and hazard correction Communicate promptly with injury witnesses to obtain details Communicate regularly with injured worker while recuperating Communicate with your Claims Administrator

27. A workplace safety program • The safest employers have fewtonoinjuries = reduced cost • Establish a workplace safety program with employee involvement • Reduces costs on average 28% • Productivity increases 43% • Workers feel valued; increases morale, job satisfaction and job retention

28. Return to Work Create a “Return-to-Work” program Return to Work is good for the worker and the employer In the event of work injury, return to work reduces indemnity payout and claim costs Do not require full duty, no restrictions – that prohibits return Offer transitional or light duty work Stay at home establishes unusual family dynamic Return helps worker – employer contact Boosts worker self-esteem Return utilizes worker’s skill and experience • Studies indicate the longer a worker is out the more likely it is they will never return to work

29. Promote Health and Wellness Health & wellness efforts reduce claim costs Healthier, fit employees recover more quickly Consider support or reimbursement for: Health club membership Weight reduction programs Smoking cessation Claim costs increase with obesity NCCI study indicates claim costs rise with rise in BMI Healthy BMI claim costs per 100 workers was $7,500 Moderately obese claim costs per 100 workers was $23,300

30. Learn from prior injuries Review injuries that occur in your workplace Required reporting so they should be on file They are unique to your workplace What is the cause of your injuries? Identify and correct hazards Identify training needs Identify injury patterns, problematic equipment, people, places, or shifts What canyoudo to avoid such an injury?

31. Any Questions?

32. Laura K. Collins, Esq. Insurance Manager Virginia Workers’ Compensation Commission 1000 DMV Drive Richmond, VA 23220 Laura.Collins@workcomp.virginia.gov W (804) 482-5304 M (804) 441-2038